ETF Spotlight: Buyback Achievers Portfolio (PKW)

The Buyback Achievers Portfolio (PKW) tracks the NASDAQ US BuyBack Achievers Index, which is designed to measure the performance of U.S.-listed companies that have repurchased at least 5% or more of its outstanding shares for the trailing 12 months.

The main appeal behind investing in these companies is quite simple: If a company is buying back its own stock, management must believe that shares are undervalued. A stock repurchase program can also be seen as a sign of confidence, which may potentially bolster the stock price higher as more and more investors take notice. Additionally, because the number of shares outstanding is effectively reduced, a buyback program can help improve financial valuation ratios, including ROE and ROA metrics, as well as lowering the stock’s P/E ratio.

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PKW’s resulting portfolio consists of roughly 250 individual holdings, the majority of which are large and giant capitalization companies. There is, however, meaningful exposure to mid-cap firms, as well as some exposure to small and micro stocks. As of March of 2015, the fund’s portfolio allocated roughly 50% of total assets to consumer discretionary and information technology equities, while industrials and financials also received meaningful allocations.

It is important to note that PKW is reconstituted annually in January and is rebalanced quarterly in January, April, July, and October. Because of the underlying index’s methodology, which targets only those companies that have repurchased at least 5% of shares within the trailing 12-month period, the portfolio will likely change significantly each year.

While PKW’s portfolio is quite large, it is important to note that over one-third of the fund’s total assets are allocated to the top 10 holdings, meaning the performance of the fund will greatly rely on the performance for the top 10 companies. Another potential bias in PKW’s portfolio is its hefty allocation to only a few sectors, one of which is consumer cyclicals, which tend to exhibit higher levels of volatility to “safer” sectors such as consumer staples or utilities.

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Investors can use PKW as either a core or tactical holding, depending on your investment objective. For those looking to specifically implement the buyback strategy, this fund is a compelling core holding, as it gives efficient, low maintenance, and low cost access to this methodology. It is important to note that PKW is currently the only ETF that offers access to this strategy, besides its international counterpart – the International Buyback Achievers Portfolio (IPKW B-). To learn more about IPKW, be sure to check out this great piece.

PKW charges an expense ratio of 0.68% and can be traded commission free on the Charles Schwab trading platform.

For those looking for an easy and efficient way to tap into a compelling investment strategy, the Buyback Achievers Portfolio (PKW B+) is certainly worth considering. Its focus on companies that have returned cash to shareholders via buybacks allows investors to tap into stocks that have historically made excellent investments. As always, be sure to do your own research to determine whether or not this ETF fits into your overall strategy before making an allocation.

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Disclosure: No positions at time of writing.